Tech Companies’ Investment in R&D Pushes the U.S. Economy Forward
R&D is the lifeblood of product innovation, and tech companies are global leaders in R&D investments. In recent years, tech companies invest upwards of $100 billion annually in research and development, and those investments have led to some of our most used products and services today. See the full extent of how tech R&D benefits the economy:
— Tech companies in the U.S. are at the forefront of R&D investment, and their spending levels continue to grow.
— Productivity and innovation are among the intangible but all-important benefits of R&D.
— Investment in R&D evidences the competitive pressure that companies face in the tech sector.
Tech companies in the U.S. are at the forefront of R&D investment, and their spending levels continue to grow.
Antitrust expert and former Attorney Advisor to former FTC Commissioner Joshua Wright, Jan Rybnicek notes that U.S. tech companies are the global leaders of R&D investment.
Vying to stay competitive, tech companies have increased their levels of spending on R&D and capital expenditure for the last nine years. “For Big Tech, these expenses reflect the rising costs of running their current businesses while also developing new ones to stay more competitive—in a world where their most significant source of competition is mostly each other. Apple, for instance, is expected to boost its R&D spending by 17% to $14 billion for this calendar year, outpacing the 10% revenue growth analysts expect for the same period. The iPhone maker’s R&D bill has been steadily climbing over the last several years as it seeks out new hit products to offset its slowing smartphone and tablet businesses.”
Productivity and innovation are among the intangible but all-important benefits of R&D.
R&D contributes significantly to workforce productivity, a key indicator for our economy’s well-being. “Tech companies lead top U.S. companies in R&D spending. That’s notable because spending on research and development is a key indicator for U.S. productivity, a measure of how well our economy is doing, and productivity has been decreasing lately. No one is really sure why, especially given all the advances in technology. But spending on R&D is another factor in measuring productivity, and tech companies are certainly contributing in that area.”
Robert Atkinson, President of the Information Technology and Innovation Foundation, writes in a report that R&D spending’s positive impacts on productivity are “economy-wide.” “The principal source of technological progress is R&D. Zvi Griliches’s seminal empirical work on identifying the effect of R&D on productivity found a significant positive relationship between R&D and productivity. A review of economic studies finds that when firms increase R&D investment by 1 percent, their productivity increases by 0.05 to 0.25 percent, or the equivalent to a 20 to 30 percent return on investment. Kancs and Siliverstovs showed that R&D increases firm productivity with an average elasticity of 0.15. An earlier review by CBO found smaller estimates with an elasticity of between 10 and 20 percent for firms and industries, with the rate of return for firms between 20 and 30 percent. However, firms and even industries are unable to capture all the benefits of their own R&D. As such, economy-wide impacts will be higher than firm and even industry impacts.”
Investment in R&D evidences the competitive pressure that companies face in the tech sector.
The fact that U.S. tech companies continue to invest so heavily in R&D shows that they feel pressure from their competitors to continue to innovate, argues Jim Pethokoukis, fellow at the American Enterprise Institute. “America’s tech titans don’t much act like monopolies with secure competitive positions. They spend a lot on R&D, for instance. And they’re constantly bumping up against each other. These are big and powerful companies, no doubt, but they got that way by supplying goods and services that consumers greatly value.”
Speaking at CES 2020, Atkinson discussed the disadvantages to innovation the U.S. economy would face if tech companies were broken up. “The size that these companies have enabled them to make big investments in the future and big investments in R&D. If we try to break that up, we’re going to lose that.”